ONE LIBERTY PROPERTIES, INC. — Q3 2011 Form 10-Q
Reporting period: Three and nine months ended September 30, 2011. Unaudited consolidated results; financial statement amounts below are in millions of dollars except per-share data. One Liberty is a self-managed REIT focused on diversified commercial properties, many under long-term net leases. At quarter-end it owned 88 properties and had interests in five joint-venture properties across 29 states; occupancy was approximately 98.4%.
Financial performance
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Rental income | $11.151 | $10.466 | $33.494 | $30.546 |
| Operating income | $6.095 | $6.069 | $18.801 | $17.090 |
| Operating margin | 54.7% | 58.0% | 56.1% | 56.0% |
| Income from continuing operations | $2.765 | $2.392 | $9.430 | $6.725 |
| Net income | $2.765 | $2.846 | $10.639 | $7.665 |
| Basic and diluted EPS | $0.19 | $0.25 | $0.75 | $0.67 |
| Cash distribution declared per share | $0.33 | $0.30 | $0.99 | $0.90 |
- Cash flow: Nine-month operating cash flow was $15.935 million, versus $12.989 million. Investing activities used $11.954 million; financing activities used $3.283 million. Cash increased $0.698 million to $8.430 million.
- Balance sheet and debt: Total assets were $451.902 million and total liabilities $233.226 million at September 30. Mortgages payable were $197.796 million and the credit line balance was $20.000 million. Mortgages were predominantly fixed-rate, with a reported 6% weighted-average rate and maturities from 2012 to 2037.
- Liquidity: Reported available liquidity was approximately $44 million at September 30, excluding the $6 million deposit balance required by the credit facility. This comprised $8.4 million cash, $0.584 million securities and $35 million of available credit. At November 2, liquidity was approximately $35.8 million, including $8.7 million cash and $26.5 million available credit.
Changes and notable items
- Rental income rose 6.5% in Q3 and 9.7% year to date, primarily reflecting acquisitions. The 19 properties acquired since February 2010 contributed $1.1 million in Q3 and $3.8 million year to date. Robb & Stucky’s bankruptcy and lease rejection reduced rental income by approximately $0.385 million and $0.647 million, respectively.
- Q3 net income declined despite higher continuing-operations income, as the 2010 quarter included $0.454 million of discontinued-operations income. Nine-month net income increased, helped by a $1.240 million gain on settling debt and a $0.932 million property-sale gain; continuing-operations income also improved.
- Operating expenses increased 15.0% in Q3 and 9.2% year to date. Increases included depreciation from acquisitions, higher management and compensation costs, and property taxes and expenses associated with the former Robb & Stucky property.
- The company sold an Office Depot-leased property in May for net proceeds of $11.544 million and recorded a $0.932 million gain. It acquired five properties for $22.2 million during the first nine months; those properties were fully occupied and single-tenant net leased when acquired.
- A February stock offering of 2.7 million shares generated approximately $40.569 million net proceeds, used mainly to repay mortgages and reduce the credit line. Mortgage and credit-line balances were lower than at December 31, 2010.
Outlook, risks and contingencies
- No numerical earnings or acquisition guidance is provided. Management expects to meet substantially all operating cash needs, including dividends, from operations.
- Approximately $44.3 million of mortgage debt is due through 2013. Management expects repayment primarily from cash, operating cash flow and mortgage financing or refinancing, but warns that failure to refinance could require additional equity or debt issuance or property sales on unfavorable terms.
- The revolving facility has a $55 million limit, matures March 31, 2013, and charges the greater of 90-day LIBOR plus 3% or 5.5%. The company reported covenant compliance at September 30; $28.5 million was outstanding on November 2.
- Tenant credit and leasing remain key risks. Robb & Stucky filed for bankruptcy, rejected its lease and vacated by June 30; the company had received no rent from that property since the vacancy. The allowance for doubtful accounts rose to $1.491 million from $0.977 million at year-end.
- Interest-rate swaps had a $0.899 million liability fair value at quarter-end. Management estimated that $0.342 million of losses would be reclassified to interest expense over the following 12 months. A 1% change in forward rates would affect swap fair value, but management said it would not affect net income or cash in the stated sensitivity analysis.
- On October 27, a newly formed, 90%-owned consolidated joint venture acquired a New Jersey retail property for $5.8 million cash. Redevelopment is contemplated; a new tenant had leased approximately 70,500 of 115,500 square feet at closing.
Important facts for investors to verify
- Debt maturities and the company’s refinancing capacity, particularly the approximately $44.3 million due through 2013 and the March 2013 credit-facility maturity.
- Rent collection, re-leasing prospects and any further impairment or costs related to the vacant former Robb & Stucky property.
- Whether acquisition-driven rental growth and the 98.4% occupancy rate are sustained, including progress on the Cherry Hill redevelopment.
- Dividend coverage by recurring operating cash flow; the filing reports $0.99 per share declared for nine months and $15.935 million of operating cash flow.
- Share-count reconciliation: the balance sheet reports 14.146 million shares issued and outstanding at September 30, while the cover page reports 14,561,778 shares outstanding as of November 1.